Published 6:35 am, Friday, October 25, 2013

Permian Basin skies are increasingly being lit up not only by the lights of drilling rigs and the flames of gas being flared from producing wells.

“With the lights from the drilling rigs and the flares, there’s no darkness in the desert anymore,” mused L. Peter Galusky, an environmental engineer and principal in Texerra LLC of Monument, Colo.

Area residents may joke that the odors from venting and flaring natural gas is the smell of money, but to Galusky and others, it is the smell of wasted money. At Galusky’s suggestion, Midland College’s Petroleum Professional Development Center hosted a daylong symposium this week on ways to bring value to that stranded gas rather than venting it into the atmosphere or flaring the commodity.

Mike Banschbach of Banschbach Consulting said there are a combination of reasons Permian Basin producers are unable to move their natural gas to market, “some of which are solved or are being solved.”

Among the issues solved or being solved are additional natural gas liquids fractionators at Mont Belvieu and increased NGL transportation between the Permian Basin and the Gulf Coast, he said. He added that a number of processing plants have also been added.

“The key thing people are experiencing, if they’re flaring their gas, is between the wellhead and the processing plant,” Banschbach said, noting that the issue is very localized.

The infrastructure, he said, is not only old but was never designed to handle the current production volumes.

Galusky, who spoke at the symposium, said if there is no pipeline or if pipeline capacity is insufficient to move natural gas to market, the only options operators see are to vent or flare the natural gas. The goal of the symposium, he said, was to get operators thinking about other possibilities for the commodity, whether it’s utilizing that natural gas to generate electricity on site to power production equipment and or water reclamation equipment, sell back into the power grid, compress it and truck it to markets to sell as compressed natural gas or capturing the carbon dioxide from flares and selling it for use in hydraulic fracturing. That, Galusky said, offers a better return and reduces the need for fresh water.

“It’s easy and cheap to vent or flare natural gas and the problem goes away,” Galusky said. “It requires low capital costs, low operating costs to flare gas. But venting and flaring gas causes air emission compliance obligations. By venting or flaring gas, you’re getting no productive use from that resource. These other options — generating electricity, boiling water for reclamation or compressing it — entail air emission issues as well, to varying degrees, but at least you’re getting value out of them. The challenge is how to make them economic, and so far flaring wins.”

Individual companies, he noted, “have been doing things here and there.” This week’s symposium, he said, was an attempt to start a broader discussion.

Pat Ennis, founding principal of Priority Power Management, said companies consider each project on a case-to-case basis, carefully considering the installation costs for a new plant, which can range from $500 to $1,500 per kilowatt hour, who will operate the plant and other considerations.

“Each project requires its own analysis,” he said. “The best value may not be to sell the power back to the grid but use it on-site.”

Ennis added, “(the project) doesn’t have to turn a profit, it can reduce costs somewhere else.”

He said there is always discussion among his client companies about installing on-site power generation “but very little activity. Those that do install generation install it because it’s the right thing to do.”

Beyond economic concerns, Galusky said it requires a different mindset from producers, who he noted are used to simply producing a raw product. “Suddenly they’re electric generators, they’re water treaters,” he said. “It requires commitment and it has to make economic sense.”

While regulatory requirements “are the bottom line driver,” Galusky said his focus is the economics and bringing companies together in a way that make economic sense.

Nevertheless, he said, regulations do exist and the Environmental Protection Agency is getting more directly involved in oil and gas operations, citing new Quad O regulations as an example. Those regulations, he said, raise the bar in compliance, they also raise the stakes in non-compliance.

“Producers will have to meet the EPA on the EPA’s terms,” he said. “Even though these are environmental regulations, compliance is a bottom line component.”

That is why, he said, his focus is on creating value for those compliance efforts “rather than the EPA dragging the industry into compliance.”

Galusky also urged operators to take another perspective on the regulations.

“Look at this not as a tree-hugger issue, but as a health issue,” he urged. “That way, operators can more easily have a heart to stay ahead of the EPA.”